NICE Stock Study (7-13-23)

Posted by Mark on September 13, 2023 at 07:04 | Last modified: July 13, 2023 10:48

I recently did a stock study on Nice Ltd. ADR (NICE) with a closing price of $206.28.

M* writes:

     > Nice is an enterprise software company that serves the customer
     > engagement and financial crime and compliance markets. The company
     > provides data analytics-based solutions through both a cloud
     > platform and on-premises infrastructure. Within customer
     > engagement, Nice’s CXone platform delivers solutions focused on
     > contact center software and workforce engagement management,
     > or WEM. Contact center offerings include solutions for digital
     > self-service, customer journey and experience optimization, and
     > compliance. WEM products optimize call center efficiency,
     > leveraging data and AI analytics for call volume forecasting and
     > agent scheduling. Within financial crime and compliance, Nice
     > offers risk and investigation management, fraud prevention,
     > anti-money laundering, and compliance solutions.

Over the past decade, this medium-size company has grown sales and EPS at 10.3% and 12.9% per year, respectively. Lines are mostly up, straight, and parallel except for sales dip in ’15 and EPS dip in ’16. PTPM leads peer and industry averages while trending up from 8.8% in ’13 to 15.8% in ’22 with a last-5-year mean of 14.1%.

Also over the past decade, ROE leads peer and industry averages while trending up from 4.4% in ’13 to 8.7% in ’22 with a last-5-year mean of 7.9%. Debt-to-Capital is much lower than peer and industry averages with a last-5-year mean of 21.6%.

Quick Ratio is 1.8 and Interest Coverage is 21.8. Value Line assigns an A rating for Financial Strength while M* rates the company Exemplary for Capital Allocation.

With regard to sales growth:

• CNN Business projects 9.1% YOY and 8.7% per year for ’23 and ’22-’24, respectively (based on 12 analysts).
• YF projects YOY 8.5% and 11.8% for ’23 and ’24, respectively (12 analysts).
• Zacks projects YOY 8.6% and 12.2% for ’23 and ’24, respectively (5).
• Value Line projects 10.5% annualized growth from ’22-’27.
• CFRA projects 11.1% and 11.3% per year for ’22-’24 and ’22-’25, respectively.
• M* gives a 2-year ACE of 10.5% per year and projects 5-year annualized growth of 15.0% in its analyst note.

I am forecasting conservatively below the range at 8.0%.

With regard to EPS growth:

• CNN Business projects 11.0% YOY and 12.0% per year for ’23 and ’22-’24, respectively (based on 12 analysts), along with 5-year annualized growth of 12.0%.
• MarketWatch projects 12.8% and 13.5% per year for ’22-’24 and ’22-’25, respectively (13 analysts).
• Nasdaq.com projects 16.0% YOY and 15.2% per year for ’24 and ’23-’25 (5, 5, and 3 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 12.6%.
• YF projects YOY 17.2% and 13.0% for ’23 and ’24, respectively (12), along with 5-year annualized growth of 12.0%.
• Zacks projects YOY 11.0% and 13.5% for ’23 and ’24, respectively (6), along with 5-year annualized growth of 12.8%.
• Value Line projects 14.9% annualized growth from ’22-’27.
• CFRA projects 13.6% YOY and 13.7% per year for ’24 and ’23-’25, respectively, along with a 3-year CAGR of 16.0%.
• M* projects long-term annualized growth of 13.4%.

I am forecasting conservatively below the long-term-estimate range (mean of six: 13.0%) at 11.0% and using 2022 EPS of $3.96/share as the initial value rather than ’23 Q1 $4.28 (annualized).

My Forecast High P/E is 40.0. Over the past decade, high P/E has ranged from 29.9 in ’15 to 107.3 in ’21 with a last-5-year mean of 76.8 (last-10-year median is 47.5). The last-5-year-mean average P/E is 60.3. The most recent three years all seem extreme (96.9, 107.3, 76.5). The last-10-year mean excluding these is 40.8. I am forecasting just below the latter.

My Forecast Low P/E is 34.0. Over the past decade, low P/E has ranged from 20.9 in ’15 to 41.2 in ’22 (excluding 70.9 in ’21). The last-5-year mean (outlier excluded) is 36.9 and the last-10-year median is 34.6. I am forecasting below the latter.

My Low Stock Price Forecast (LSPF) is the default $134.60 based on $3.96/share initial value. This is 34.7% less than the previous close and 18.3% less than the 52-week (and 2022) low.

Payout Ratio decreases from 53.9% in ’13 to zero in ’18 where it has remained ever since. I will not forecast a dividend until reason is given to do otherwise [interesting that while MS (see below) has a median value of zero, the mean is 6.2% as 18 studies have values of 6.2% or greater].

These inputs land NICE in the HOLD zone with a U/D ratio of 1.1. Total Annualized Return (TAR) is 6.3%.

PAR (using Forecast Average—not High—P/E) of 4.7% is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 46 studies over the past 90 days (my study and 18 outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, and Forecast Low P/E are 10.2%, 11.9%, 50.0, and 33.5, respectively. I am lower on all except the latter (34.0). Value Line projects an average annual P/E of 23.5, which is much lower than MS (41.8) and mine (37.0).

MS high/low EPS is $7.25/$4.05 vs. my $6.74/$3.96 (per share). My high EPS is lower due to a lower growth rate. Value Line has a projected high EPS of $15.25, which is almost double that of MS. This more than offsets the lower average annual P/E.

MS LSPF of $141.90 implies a Forecast Low P/E of 35.0 vs. the above-stated 33.5. MS LSPF is 4.6% greater than the default value of $4.05/share * 33.5 = $135.68, which results in more aggressive zoning. MS LSPF remains 5.4% greater than mine.

Despite the small MS sample size, I think MOS in the current study is moderate.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are two valuation metrics I have recently begun to monitor. PEG is 1.90 per Zacks while Relative Value is 0.77 per M* data. These suggest the stock to be overvalued and undervalued, respectively.

I am also starting to familiarize myself with Kim Butcher’s “quick and dirty DCF.” According to this method, the stock should be valued at 21 * [$18.65 – ($0.00 + $0.95)] = $371.70 (i.e. stock overvalued by 45.0%).

I would look to re-evaluate NICE under $168/share.